Take three investors, all with a very different approach to investing. Each one has been investing their full ISA allowance since 6 April 2006 and for each their returns are in pounds sterling and based on the performance of the FTSE All-share index over that period.
But that’s where the similarities end. Investor A is an early bird. They invest their full ISA allowance on the very first day of each tax year, while slow and steady Investor B takes a measured approach - investing their ISA allowance in 12 equal monthly instalments. Finally we have Investor C who leaves it until the very last minute, investing their full annual ISA allowance on the last day of the tax year. So which one do you think does best? Early bird, steady Eddie or last-minute Larry?
It’s early bird of course. They will now be sitting on an ISA pot worth £167,121 compared to steady Eddie’s £164,616 and Last minute Larry’s £158,551. When you think that each of these investors have invested exactly the same sum of money, in exactly the same investments, the difference in their returns is even more stark.
The £8,570 less that last-minute Larry gets as a result of waiting right until the end of the tax year to make an investment, is down to the fact that by procrastinating they lose out on 12 months of compounding - that magical snowball effect on your money where you start earning money on the returns earned since you invested the original sum. It’s a phenomenon that none other than Albert Einstein once dubbed the “eighth wonder of the world”.
Tap into a world of expertise
If worries about making the wrong investment choices tend to leave you flapping about how to invest right until the last minute, then choose a managed fund for your ISA and let the experts handle the investment choices for you. Unlike a tracker fund that merely mirrors the ups and downs of a stock market, an active fund is free to invest in the companies with the most potential - and steer clear of the ones that are heading in the wrong direction.
Fidelity’s Select 50 range of preferred funds can make the task easier still, by giving you a short-list of 50 funds across a wide range of sectors, geographies and asset classes. So whether you want to invest in FTSE 100 blue chips, US small caps, Japanese equities or emerging markets, gold or property, or a mix of all of the above, you can.
The trick is to start investing now. It’s the dawn of a brand new tax year and with a new £20,000 allowance to boot (letting couples save up to £40,000 a year) the time is right to make 2017 the year you turn over a new leaf and start making the most of your hard-earned cash. And give procrastination a run for his money.
Emma-Lou is an experienced financial journalist with over 20 years’ experience working in the national and online press. The former editor of Shares magazine and Moneywise and editor-in-chief of Interactive Investor, she has also worked for The Telegraph and the Evening Standard, Bloomberg Business News and BBC Radio 5 Live.
Register for a 10% Personal Investing discount with Fidelity.
The value of investments and the income from them can go down as well as up and investors may not get back the amount invested. Eligibility to invest in an ISA and the value of tax savings depends on personal circumstances and all tax rules may change. The Select 50 is not advice or a recommendation to buy or sell a fund. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.